The Rising Billion
How multinational businesses can keep up with the new global consumer
Emerging market economies are expected to grow three times faster than developed ones over the next few years. These consumers from Asia, Africa, and South America are arriving in the global marketplace, enabled by technology and inspired by exposure to the brands we all know so well. They are driven by a desire to live the lifestyle they’ve seen streaming through their TV sets and smartphones.
The emerging middle class is ambitious and aspirational, and itis compelling businesses that have traditionally underserved developing markets to take action.
This market has seen a major shift, from aid-givers pouring money and resources into charity work to platforms that bring together local expertise, organizations, and money to deliver home-grown solutions that are scalable and deliver long-term impact. Unlike the non-profit model, these enterprises have the commercial acumen, financial resources, and brand reach to build and sustain their innovation platforms.
Multinationals are quickly becoming significant players in the world of social innovation as they come to terms with the massive opportunity that lies in solving challenges in developing markets. But, introducing innovations that truly help those in need while ensuring they’re self-sustaining requires an approach that looks at the Rising Billion as customers and their own role as more than Corporate Social Responsibility or charity. They need to solve for both commercial and consumer needs, which is the bedrock of the two-sided approach to innovation.
Disruptive innovation typically happens at the intersection of constraints and a compelling need. Because of this, markets at the end of the socio-economic spectrum are prime for disruption and growth.
As this consumer group strengthens its spending power, it is also developing products and services that have the ability to not only disrupt — but replace — how business happens elsewhere. Leading this imperative are four major opportunities for business.
Future customers are at stake. The emerging middle class in BRIC countries is expected to add US $3.3 trillion to their consumer spending by 2020, and improving infrastructure and technology have lowered the barriers for these consumers to get access to basic necessities for survival. Facebook’s investment in world connectivity under the initiative Internet.org is equal parts virtuous and sensible. Two-thirds of the world is not connected to the internet, which means that they don’t have the same access to learn, enjoy, and socialize that the rest of the developed world has. It also means that until this is solved, two-thirds of the world will not have access to use Facebook.
Reverse innovation can build advantage in mature markets. The challenges and constraints of developing markets can provide solutions and insights that can improve and innovate products with global appeal. For instance, GE Healthcare built a portable, ultra-low cost, battery operated, easy-to-use, electrocardiograph machine built for doctors in India and China that is now disrupting the global market. Sold in over 90 countries, the machine is 80% cheaper than similar products in developed markets like the U.S.
Big problems have big markets. There are untapped and unsolved markets for global challenges. Annually, US $54 billion is spent to provide basic education in 46 low income countries globally. Even with the success of M-Pesa, over 2.5 billion potential customers worldwide don’t use or have easy access to financial services or banks. Launched by Vodafone, M-Pesa is the most successful mobile phone based financial service in the developing world, and as of 2012, 17 million M-Pesa accounts had been registered in Kenya alone. In addition to giving millions of people access to financial services, it has also contributed to the reduction of crime in a society that has otherwise been cash-based.
Social responsibility impacts global reputation. In addition to building credibility for companies around their global mission and role in society, social responsibility is important for attracting the next generation of innovators into a company’s workforce. Particularly with younger generations, 62% of Millennials want to work for a company that makes a positive impact on the world. Half of Millennials would prefer working at a company that has a mission that they believe in over a higher salary.
As many multinationals have learned the hard way by not following a two-sided innovation approach, it does not simply work to take a successful innovation from a developed market and drop it into an emerging one. From education and healthcare to hygiene and clean water, developing economies represent multi-billion dollar markets and areas for huge impact. These emerging consumers are as diverse as they are large. Yet while they vary geographically, culturally, in religion, and in language, there are some shared fundamental environmental and emotional needs.
This is an aspirational group. They do not want cheap things; they desire the affordable version of the essentials they have seen other consumers access. When Unilever entered developing markets, they met this need by recognizing that the typical consumer could not afford to buy the full-size version of a product, but they were willing to buy single-use sachets of popular products at much cheaper prices. This approach later proved successful for declining markets as well, such as Greece and Spain.
Family matters. Around the world, multi-generational households are still the norm. Every purchase made attributes to household wealth accumulation, so those decisions are made collectively.
Every item is used until it breaks. To avoid wastage and often because of the size of the investment, people will use products over and over until it can no longer function. Ink cartridges will be locally refilled and disposables such as plastic bottles and diapers are constantly reused.
Women’s roles are evolving. While the role of women in these markets has evolved, it remains complicated; often despite being primary breadwinners they aren’t heads of the household. While education and economic growth are all contributors to change, new models like Coca-Cola’s Splash Bar are empowering women to sell products that were previously out of reach. By providing a kiosk where women can sell various serving sizes of Coca-Cola, Splash Bar enables women to sell products where many locals may not have been able to afford an entire bottle.
The speed of change is more rapid. The speed of technological change is enabling consumers to leapfrog from technologies and systems that have been the standard of operation for the developed world. Because there are few existing infrastructure constraints, the speed of adoption and change in emerging markets can be much more rapid than in developed ones. For instance, in Africa, landlines never hit critical mass, enabling consumers to move straight to mobile phones.
It’s not just low income, it’s also volatile income. Because this consumer is unlikely to be earning a steady paycheck, business models cannot just account for affordability; they have to expect inconsistency in payment and purchase. With increased wealth volatility in developed markets, this may be a new normal for businesses to have to address globally. Building materials company, Cemex, addressed this by providing products on credit to help consumers finish building their houses and avoid the waste of raw material.
Customer journey planning must be end to end. Businesses will have to think beyond the sale and find ways to integrate with the behaviors and lifestyle of consumers. From training and education to reuse and next purchase, brands will need to help consumers understand the benefits and how to get the most out of the product or service. In India, e-commerce has taken off because of cash-on-delivery models, which enable avoiding the need for consumers to pay in advance via credit card, which has low penetration and little trust.